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January 9, 2012 -- The U.S. government has filed a $150 million complaint against a Michigan imaging company, charging it with allegedly violating federal Medicare rules requiring physician supervision of diagnostic tests, and with paying kickbacks to physicians for referrals.

The U.S. Attorney's Office for the Eastern District of Michigan filed the complaint on January 6 against Universal Imaging of Ypsilanti, MI, and its current and former owners, Phillip J. Young and Mark Lauhoff. The complaint charges them with multiple violations of the federal False Claims Act, and alleges that they generated more than 90% of their business by paying kickbacks to physicians.

Qui tam whistleblower

The case originated in a complaint filed by radiologist Dr. Richard Chesbrough and his wife Kim Chesbrough, who formerly worked at Universal and who filed a qui tam whistleblower suit under the False Claims Act.

In 2005, Chesbrough, who had been hired to perform general supervision over all noncardiology tests conducted at Universal, resigned, but Universal did not notify Medicare of his departure. Chesbrough asked Universal to verify that it had informed Medicare of his resignation, but he discovered that it had not and therefore notified Medicare himself. In 2006, Medicare revoked Universal's billing number based on the lack of physician supervision at the facility.

The government's complaint alleges that although Universal was required under Michigan law to be organized as a nonprofit corporation to ensure the health and safety of patients, Universal surreptitiously continued to operate as a for-profit corporation by transferring its equipment to a for-profit entity, MRI Leasing, with the same owners. Universal then made "lease" payments to that for-profit entity for Universal's equipment, circumventing the laws relating to Michigan nonprofits.

The federal complaint also alleges the following:

Universal claimed that its business was limited to a few fixed facilities and mobile units, when in fact it had a substantial mobile ultrasound and nuclear stress test practice throughout southeastern Michigan.

Universal allegedly billed Medicare for tests under billing codes it had not been authorized to perform, using equipment that had not been disclosed to Medicare.

Universal allegedly paid physicians for referrals; many of the physicians paid by Universal in connection with test ordering were among the highest referrers of such tests in Michigan, compared with their peers.

Universal allegedly created contracts that purported to pay rent to physicians to whom it was sending mobile equipment; these contracts were cover for unlawful fee splitting and were not commercially reasonable -- many of the contracts had no fixed lessor or lessee.

Unnecessary dose

Also named in the complaint is Dr. Gwendolyn Washington, a primary care physician who allegedly received kickbacks for referrals from Universal and, as a result, ordered a high number of tests involving injection of radioactive materials into patients. Most of these tests were medically unnecessary, and each test exposed patients to radiation doses equivalent to 100 chest x-rays, according to the complaint.

Washington also allegedly ordered her staff to direct patients to come to her facility every three to four months for ultrasound tests, sending a driver to pick up the patients and keeping them at her facility all day, the complaint states. As a result, Washington ordered more ultrasound tests for a larger fraction of her patient population than any physician in the state of Michigan -- 18 ultrasounds per patient per year for 76% of her Medicare patient population.

Washington is currently incarcerated; she was sentenced in November 2011 to 120 months in prison on charges of public corruption, healthcare fraud, and conspiring to illegally distribute prescription drugs.

At the same time that she announced the complaint against Universal, U.S. Attorney Barbara McQuade also announced settlements totaling $1.56 million with 14 physicians or physician groups who were paid for their referrals by Universal. The settling physicians include Dr. David Schaefer; Drs. Vladimir and Albert Klemptner; Dr. Corey Haber; Drs. John and Andrew Zazaian; Partners in Internal Medicine; Drs. Eric Straka, Sara Hashemian, and Peter Paul; Drs. Gregory Stevens and Teresa Wargovich-Stevens; Dr. Steven Hartz; Dr. David Leszkowitz; Dr. Alexander Vertkin; Dr. Keith Pierce; Dr. Corrine Adler; Dr. Namir Stephan; Dr. Carmen Bogdan; and Dr. James B. Hayner.

"Doctors should be aware that we are scrutinizing records and detecting fraud and kickbacks," McQuade said in a statement. "We hope that our aggressive enforcement will deter doctors from cheating the taxpayers and endangering patients."